Electricity prices frozen; in the first round of competition between coal-powered power generation and other sources at the start of the new year, coal companies have the upper hand

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Affected by the State Council’s recent ban on raising oil and electricity prices, the competition between coal-fired power and other energy sources was particularly evident in the capital market during the first half of 2008: electricity-related stocks declined sharply yesterday, while coal-related stocks, represented by Shenhua, saw significant increases. 　　“In the competition in the coal power sector over the past few years, coal companies have almost always held the upper hand; looking at the situation at the beginning of 2008, it seems that coal companies are still in a favorable position for now. ”**A researcher at the Center for Energy Economics and Development of the Energy Research Institute under the National Development and Reform Commission said in an interview with Yicai Daily. 　　Yang Ming, an analyst at Shen Yin Wan Guo, also believes that with average increases of 10% and 20% in contract coal prices and shipping costs respectively in 2008, the restrictions on electricity price adjustments will undoubtedly increase the cost pressures on power companies (especially thermal power plants) in the first quarter. 　　Given the current situation, due to factors such as CPI pressures, industrial electricity prices will not be adjusted in the short term, which means that power companies will face significant pressure in the near future. “There are already some power units that could stop generating electricity at any time. ”A source from State Power Investment Corporation, one of the five major power generation companies, said. 　　Donovan Huang, a senior power analyst at Nomura Securities, said that the urgent action taken by the State Council confirms market expectations that independent power producers in China will not be able to raise electricity prices, at least in the first half of 2008. 　　Previously, the five major power generation groups, including Huaneng Group, submitted a request to the National Development and Reform Commission via the China Electricity Council for a third round of \"coal-fired power price linkage,\" but the NDRC explicitly terminated the negotiations regarding this mechanism. \"A result like today’s was expected.\" ”Yang Ming said. 　　An analyst at Changjiang Securities (37.84, -0.06, -0.16%, Stock Bar) believes that these new regulations will be detrimental to companies in the power and petrochemical sectors, while coal mining companies are likely to benefit the most. The analyst also noted that since the regulations do not address the issue of controlling coal prices, and given that the coal market is still in a situation where demand exceeds supply, coal prices are likely to rise further. “Recently, the average price of thermal coal has increased by nearly 40 yuan per ton. Additionally, with some coal mines in Shanxi reducing production this year, there is a high likelihood of further increases in coal prices.” ” 　　Due to the persistently high prices of thermal coal, some power generation companies have been forced to scale back their merger and acquisition plans and allocate more funds to \"striving to develop coal resources.\" 　　Datang Power (29.00, 1.32, 4.77%, Stock Bar) also issued a statement recently stating that, as the conditions for pursuing a bankruptcy reorganization plan were not yet ripe, it had decided to abandon its plans to acquire the small chemical company Jinhua Chemical. Amidst the overall decline in prices of power-related stocks, Datang Power’s A-share price actually increased. Analysts believe that due to the freeze on electricity prices, the Datang Group must invest more funds in its existing coal mines and large-scale coal chemical projects in order to secure its upstream resources, and the capital market has given positive feedback to this decision. 　　In 2007, China’s coal production and consumption increased by around 9% to 10%, while the profits of coal companies rose by approximately 35%. In 2008, the expected growth rate of electricity consumption across the entire economy is around 13%, and coal consumption will increase by another approximately 100 million tons, reaching 1.4 billion tons. 　　Although power companies reported record levels of electricity generation yesterday, “it is not ruled out that a shortage of electricity could be caused by coal factors,” said the analyst from Changjiang Securities. 　　Yesterday, the shares of China Resources Power (0836.HK) and China Power (2380.HK) dropped by nearly 8% ； Huaneng International (14.73, -0.20, -1.34%, Stock Bar) (600011.SH, 0902.HK) and HuanDian International, whose power generation volume increased by over 40% in 2007 (9.42, 0.04, 0.43%, Stock Bar) (600027.SH, 1071.HK), both saw their A-share prices drop by more than 2%; their H-share prices declined by 4.89% and 6.96% respectively ； In 2007, power generation increased by nearly 27%; meanwhile, Datang Power (601991.SH, 0991.HK), which had suspended its M&A activities, saw its H-share price drop by 4%, while Yangtze Power (600900.SH) declined by 2.38%.